“The Financial Jigsaw” has been serialised here and now is replaced by this weekly “Letter from Great Britain.”
NOTE – If anyone would like an electronic copy of the complete book, I should be pleased to email a free PDF on request to: [email protected].
One website about the UK is always worth reading because the author, Dr Richard North, is an experienced health professional and provides useful information on a daily basis. http://eureferendum.com/
We start this week with a light-hearted look at how badly our government has screwed things up: “Imagine the scene: Grant Shapps MP [Transport Minister!] and his family had flown in to Spain [last] Saturday lunchtime, picked up the hire car and had just settled into the self-catering villa when he chose to break the bad news. As of midnight UK time, anyone returning from Spain would have to quarantine themselves for 14 days on their return home.” They have no idea what they are doing – a complete pratfall of clowns!
https://www.theguardian.com/politics/2020/jul/27/shapps-feels-the-pain-in-spain-on-holiday-from-hell? UPDATE: Wolf Ritcher has the latest craziness:
And now the serious stuff: TV drama goes viral: the German-Danish series that foresaw Covid-19: https://www.theguardian.com/world/2020/jul/27/tv-drama-goes-viral-the-german-danish-series-that-foresaw-covid-19?
Unemployment in USA is the same as the total workforce in UK – WOW! “The BLS reported that the U.S. employed workforce stood at about 152 million in February. 32 million are now claiming unemployment, that’s an unemployment rate of 21%. So how do we arrive at a 12% unemployment rate? We ignore the 14.3 million contract / gig workers who are currently drawing emergency Federal unemployment via Pandemic Unemployment Assistance (PUA), and the 936,000 in the Pandemic Emergency Unemployment Compensation (PEUC) program.
But even the 21% real-world unemployment rate doesn’t reflect the full unemployment picture; previously full-time workers who have had their hours cut to part-time aren’t counted in unemployment statistics, even though their employment status has changed for the worse.” Wolf Richter has the details:
Britain also faces extreme job losses, a recent survey finds. The second round of job layoffs could be much deadlier for the economy than the first. Why is that? Well, it’s being called a “jobs bloodbath” by Make UK, because high-value skill jobs are the next to be axed.
The survey, which covered 170 companies between 7 and 14 July, shows 53% of manufacturers across the automotive and aerospace sectors are expecting layoffs of highly skilled workers by the end of the year. Make UK said these high-value sectors have long supply chains that employ tens of thousands of people directly and indirectly. If these jobs are lost due to an extended downturn, it would be disastrous for the economy and suggest a recovery could take years, some project 2024 at the earliest.
Take, for example, Airbus. The European plane maker, with production sites in the UK, said in late June it would cut 15,000 workers across its entire global workforce and doesn’t expect a recovery in air travel until 2023. Make UK’s warning about high-value job loss comes as the UK economy is expected to shrink by nearly 10% this year, making it one of the worst-hit economies on the continent.
The road to recovery is far from smooth sailing, as is routinely pitched by government officials and central bankers trying to talk up people to get back to work and spending – so far they aren’t.
“At present, the prospect of a ‘V shaped recovery for Industry’ seems remote.” said Stephen Phipson, CEO of Make UK. With no “V” shaped recovery expected, the government might have to support additional rounds of its furlough scheme that pays wages of more than 9 million people. The program is planned to be reduced from August and halted in late October.
And The National Institute of Economic and Social Research (NIESR) seems to agree as it has warned that the rate of unemployment is set to surge to around 10% of the country’s workforce by the end of the year. The Government plan to shut the coronavirus furlough scheme this autumn “seems to be a mistake” which will result in a surge in unemployment, according to this leading economic think-tank. NIESR hailed the Government’s coronavirus job retention scheme but called on the Chancellor to extend the scheme into next year in a bid to preserve jobs. Here are the details:
To emphasise the above points, have a look at these four live examples of employment distress in UK today:
“As coronavirus restrictions take their toll on the economy, the Observer has spoken to struggling business owners and people who have lost their jobs in the past three months. The end, in October, of the government furlough scheme, which covers 80% of the wages of workers temporarily laid off, is expected to trigger a spike in unemployment. But with figures last week showing a fall of almost 650,000 in the number of employees on payrolls between March and June, damage is already being done.”
If you want to know what is in store for us in UK and even America, look no further than the South African experience: “Brink of a breakdown: South Africa has reached a critical fork in the road (Part 2)” “A lesson from Zimbabwe, among others, is that just when you have seemingly hit rock bottom, things can always get worse. And in South Africa, things are now about to get much worse.” https://www.dailymaverick.co.za/article/2020-07-28-brink-of-a-breakdown-south-africa-has-reached-a-critical-fork-in-the-road-part-2/
Now that UK has left EUROPE I will comment on relevant EU – UK events as they arise:
My friend Gerry’s observations on this week’s bombshell, in his blog, ‘BOOM’: https://boomfinanceandeconomics.wordpress.com/2020/07/25/boom-as-at-26th-july-2020/
“IN A MAJOR CHANGE FOR EUROPE – Historic €750 Billion Pandemic Bonds
The 445 million people of Europe were last week effectively conquered by a committee of 27 people acting independently of any nation state. No shots were fired. No armies went to battle. But it was, indeed, a moment of great historical significance. [Thank God for Brexit!]
The committee will now borrow the huge sum of 750 Billion Euro to spend on the nations of the EU, a massive (and therefore, consequential) increase over the previous total EU debt of only 52 Billion Euro. It’s described as the Multi-annual Financial Framework (the MFF) for the Next Generation EU (the NGEU). Sir Humphrey Appleby would be proud.
In 1790, a German banker named Mayer Amschel Rothschild is reported to have said — “Let me issue and control a nation’s money and I care not who writes the laws”. Note the date for future reference.
Because of the sheer size of the sum involved, the European Commission last week essentially achieved the financial power of a sovereign nation. The Commission is now able to raise almost unlimited debt, to borrow, to issue enormous quantities of bonds on international capital markets.
Such financial power is usually claimed only by sovereign nation states. The formal language describes the Commission being “empowered” in its “Own Resources Decision” (note the purposeful use of Capitals) to borrow these funds on the global capital markets “on behalf” of the European Union up to the amount of EUR 750 Billion. Previously, the EU had issued only 52 Billion Euro of debt instruments in total. One small step has led to one giant leap – to paraphrase an heroic American.
The language is important because clearly the Commission is not a sovereign nation. It has no land to defend and no citizens. But it is declaring itself as possessing the same powers of a sovereign nation in regard to the sheer size of the capital raising. Why is this important? Because in BOOM’s opinion, 750 Billion Euro is just one step away from unlimited borrowing.
This is described as being only a “temporary” arrangement to help with the current crisis. If you believe that this is a temporary, limited step, never to be repeated, then BOOM has a bridge to sell you which you may like to buy. So what is the European Commission and do the people of Europe have any direct power over it?
The European Commission (EC) is the executive branch of the European Union, responsible for proposing legislation, implementing decisions, upholding EU treaties and managing the day-to-day business of the EU. The Commission was set up from the very start to act as an independent supranational authority separate from governments. Think carefully about that last phrase “separate from governments” because it is critical in understanding what happened in Europe last week.
It is the only EU body that can propose legislation (new laws) and that is why it stands at the absolute centre of EU power. But it has no taxation department, no defence department, no armed forces, is not a nation, does not have Sovereign status and its office holders are not elected by the people of Europe. It is akin to a Department of Government in some respects but it differs markedly because of its enormous power over the people of Europe.
Some describe it as a Dictatorship. Why? Because the appointed Commissioners are bound to act independently – free from other influences such as those governments which appointed them. And it is the Commission that currently holds executive powers over the European Union, making it the supreme power, and presently headed by a German woman!
The powers of the Commission are such that some have suggested changing its name to the “European Government”, calling the present name of the Commission “ridiculous”. In other words, it is a European Government of appointees not answerable to the people (who cannot remove them).
Its prime office holders are called Commissioners and there are 27 of them — one for each Nation in the Union. The Commissioners are “proposed” by the Council of the European Union, on the basis of “suggestions” to the Council. Clearly, they are not elected by the people of Europe. In other words, the people of Europe have no direct say in who is in charge of proposing their new laws. In 2010, the European Parliament chief, Jerzy Buzek, said that EU commissioners should in future be directly elected rather than hand-picked by national governments. But that is still not the case.
It is theoretically true that the European Parliament has the power at any time to force the entire Commission to resign through a vote of no confidence. However, this requires a vote that makes up at least two-thirds of those voting and a majority of the total membership of the Parliament. Whilst it has never used this power, it threatened to use it against the Commission headed by Jacques Santer in 1999 over allegations of corruption. In response, the Santer Commission resigned en masse of its own accord, the only time a Commission has done so. The next question to ask is: who are the Councillors who appoint the Commissioners? It’s a deep rabbit hole.
The Council of the European Council has 10 different configurations of 27 national ministers (one from each member nation). The precise membership of those configurations varies according to the topic under consideration; for example, when discussing agricultural policy the Council is formed by the 27 national ministers whose portfolio includes that policy area. In other words, there are 10 Committees involved in the Council that could each have 27 different members.
The complexity here appears deliberate. All of this seems an elaborate obfuscation of how the European Union power structure really works. And it is clearly NOT a democratic system when it comes to appointing the supreme body of European Commissioners. It is more like a club of politicians, meeting in secret to appoint each other (or others) to positions of great power in the European Commission.
The European Parliament does exist, elected by the people of Europe but it is clearly at the bottom of the power structure. It is essentially a rubber stamp for the decisions made by the various 10 Councils of the European Council and the European Commission.
Under the decision reached last week, the European Commission will borrow 750 billion Euro using its triple-A debt rating by issuing bonds on the international capital markets. It will disburse 390 billion euro in grants to individual nation states and 360 billion euro in cheap loans, no doubt after ‘administration’ costs and ‘fees’ to various insiders.
The Commission will lend the money to the neediest nations of the EU at the same interest rate it was borrowed at. This will ensure that highly-indebted countries like Spain, Greece and Italy, whose sovereign bonds have very high interest rates, will have access to funds at much lower rates.
The plan now must be approved by the European Parliament and it must be ratified by all EU states. But who would say “No” to 750 billion euro at lower than normal rates of interest? The next question to ask is: who will buy 750 billion euro of European Commission bonds?
I would add that the European Union may start to become a formal political and fiscal entity since the European Commission now has both taxing and spending authority. Why this is important for gold? Gold has been trapped between two opposing forces for nearly a year now. On the one hand is the safe haven trade that’s been in place since last year’s seizure of the repo markets in September — moving in concert with a strong dollar. On the other hand is the reflation trade, relying on the kindness of central banks creating liquidity and positive market sentiment. This would cause the dollar to fall alongside gold as traders ran with the ‘happy days are here again’ trade, as is happening now.
AND more from Project Syndicate: The European Union’s new €750 billion recovery fund is intended to tackle crises such as collapsing manufacturing output in southern member states like Spain and Italy. But money cannot solve the problem of distorted relative goods prices within the eurozone. Fixing it requires an open or real devaluation. But no one wants to talk about that. Instead, the EU’s strategy seems to be based on hope and prayer.
To be continued next week.
Back in the days of Brexit, and the convolutions of the May government to prevent it, EuReferendum was frequently interesting. But once Johnson became PM, the blog degenerated into anti-Johnson diatribes, with almost asides on the economic problems. I got bored and stopped visiting. This link has not persuaded me to visit again.
Thanks for the feedback Bob, and you are very correct. I rarely visit it now but my friend Niall Warry at: http://harrogateagenda.org.uk/ is a dedicated follower of Dr. North. I think I will drop it in future given your clear assessment. 🙂